jueves, abril 16, 2009

Investor Owned Transporters Can’t be Providers of Last Resort

Under the highly recommended EnergyPulse article Smart Grids: How Smart?, I responded to Edward A. Reid, Jr. that as the IOUs framework is replaced, we need Investor Owned Transporters (IOTs) that are not allowed to be POLR.

First posted on the GMH Blog on April 16th, 2009

WOW!!! As you can see below (taken from the EnergyPulse article), Ed is describing key features of EWPC framework, as opposed to the IOUs framework. So as Todd suggest below, we need another acronym for the EWPC framework.

The suggestion is to change IOUs to Investor Owned Transporters (IOTs). IOTs plan, operate, and control, a regulated transportation (T&D) power system, under a responsibility to transport in exchange for a reasonable rate of return. That is, we need to add that the distribution grid should be integral with the transmission grid in every control area.

If that is the case, no artificial decoupling rules are necessary, as generation, retail and customers are in an open market value chain. For retailers - which are competitive Second Generation Retailers - 2GRs as opposed to the traditional no regulated retailer - survival under competition will produce the necessary decoupling to offer the best business plans to customers, as a mix of DSIs to develop a long term relationship. Yes, 2GRs should be responsible for metering and handle the customer interface.

Just as artificial decoupling, POLR is a mean to keep the IOUs paradigm alive. It is also a mean to unnecessarily duplicate investments (known since the late 90s). Need to add to the NO POLR, that no incumbent retailer under Chinese walls be allowed.

There is only one smart grid that will be smart. We need to shift to the EWPC paradigm to enable it.

Posts taken from the EnergyPulse article (I strongly suggest to read the whole article and its ongoing comments).

Edward A. Reid, Jr. 4.16.09


There appear to me to be two "smart grid" camps. One camp views "smart grid" as an opportunity to control peak demand by controlling customer appliances and equipment to shave peaks. The other camp views smart grid as an opportunity to expose customers to the real cost of electric power and to empower them to adjust their consumption patterns in response to price signals.

The "command and control" camp has met with significant resistance from customers, because customers are unwilling to cede control of their lives to "big brother". However, when customers have been given the opportunity to respond to peak pricing by managing demand, they have responded beyond expectations.

However, it is time to move beyond the short term trials which limit response by discouraging investment as part of the process. It is time for a permanent program which encourages customers to invest in responsive appliances and equipment which can automatically respond to price signals as according to the customers' criteria.

Jose Antonio Vanderhorst-Silverio 4.16.09


The second camp needs reform to get away from the investor owned utilities framenwork. Your first camp is about Demand Side Management, while the second is about Demand Side Innovations (DSI). The obsolete business model of winning coupled energy sales rate cases to the regulator should end asap.

Instead of regulated retailers, we need competitive retailers that will introduce business model innovations to reap the increasing DSI development in the open market. Customers have a choice to invest in appliances for demand response (short term price signals), energy efficiency (long term price signals) and many other innovations that will come up as it happened in other industries after reform.

Todd McKissick 4.16.09


Fully agreed here. The command and control camp refuses to recognize the other camp in public or at any lobbying table. VERY smart move on their part because they're taking the credit from the empowering camp's support while simultaneously gagging their voice. In the meantime, they're confiscating all the subsidies for smart grid money and using it to install more half smart meters which will become stranded.

The empowered camp needs a new acronym to differentiate it from the smart grid. I see a couple floating around, but there's not enough cohesion for any of them to stick.

Edward A. Reid, Jr. 4.16.09

Jose Antonio,

The IOU distribution grid exists. There is no reason why it cannot be operated efficiently as a common carrier system. There is certainly no economic justification for installing competing distribution grids.

Their is no fundamental conflict between the concept of competitive retailers and the concept of a regulated common carrier distributor of a commodity supplied by competitive retailers. The devil, as usual, is in the details.

With decoupling, there is no reason why the common carrier distributor should be responsible for metering. There is also no need for the common carrier distributor to have a direct customer interface; the distributor can be compensated by the competitive retailer for providing the service.

One of the details which must be addressed is the POLR. I am not convinced that a POLR is necessary in a competitive market. I am convinced that the common carrier distributor should not be the POLR, if regulators insist on a POLR. There is also no reason why the competing retailers could not support a POLR "pool", if the regulators insist on a POLR.